Yes, I agree there is a difference between the legal forms of conducting a business and the principal federal income tax forms of doing so.

A sole proprietorship is the easiest form of business organization and the most common form. Although easy to organize; a sole priortorship exposes the owner to the most significant personal exposure in the daily operations and in legal or liquidation situations. Operations for tax purposes are reported on Schedule C of the owner's personal tax return and is taxed at the personal rate.

A partnership is created by two or more people sharing in the profits and losses of an entity in line with ownership or any other designated form as detailed in the operating agreement. Partnerships provide legal protections of personal assets. Owners are only responsible for their share of profits which are reported on schedule K1 and taxed through the owner's personal tax return. Owners are not allowed to maintain a salary in a partnership. Funds are advanced to the owner in the form of distributions. A partnership files Form 1065 annually.

An S corporation is a hybrid between a partnership and an S corporation. The business form provides some additional protection of personal assets attributed to a C corporation, owners are allowed to maintain a reasonable salary in addition to distributions. Profits, like a partnership, are allocated to each owner through K1's annually. Owners are only responsible for their portion of the profits and losses of the entity. Profits pass through and are taxed on the personal level. The entity files Form the 1120S annually.

C Corporations are the oldest business entity. C Corporations operate as a separate business entity subject to taxes separate and in addition to shareholders which may result in double taxation. C corporations are subject to a substantial amount of different regulation; however, owners are not liable personally for the liabilities or legal issues of a firm unless personally guaranteed. The entity files Form 1120 annuall an pays taxes on all profits. Profits do not pass through to shareholders in a C corporation.